Phl, Asian economies to remain resilient vs external risks – Moody’s

MANILA, Philippines - Asian economies, including the Philippines, are seen remaining resilient against challenging external developments this year such as the expected rise in US interest rates, weak oil prices and geopolitical risks elsewhere, Moody’s Investors Service said.

“External vulnerabilities and policy constraints are generally lower in Asia than other emerging regions globally,” the debt watcher said in its latest report titled Asia’s Solid Fundamentals to Support Regional Credit Conditions.

“Our 2015 projections for major external vulnerability metrics and policy flexibility suggest that Asia is relatively well placed to deal with global challenges such as US dollar appreciation, rising treasury yields and other exogenous shocks. Liquid banking systems will also be supportive in the event of tighter external financing conditions,” Moody’s said.

This year is expected to bring more challenges to emerging markets as the improvements in the US economy will be counterbalanced by China’s economic slowdown and still weak activity in the euro area and Japan.

At the same time, monetary policy across advanced economies will diverge, Moody’s stressed. The US Federal Reserve is widely expected to being increasing rates by the middle of the year, while its counterpart in Japan and the euro area are launching easing measures to combat deflation and pump money in their economies.

“We also expect a sustained period of weak oil prices, with our 2015 average assumption for Brent crude standing at $55 per barrel. Finally, geopolitical risk will remain a pertinent theme in 2015, given the ongoing Russia-Ukraine conflict and resurfacing political strains in Europe,” Moody’s said.

“Despite these headwinds, Asia’s macro fundamentals and growth prospects appear sufficiently robust to help preserve relatively stable credit conditions in 2015,” the debt watcher added.

The strength of Asian economies come from their healthy external balance sheets and their flexible policy space, Moody’s explained. The credit rater saw minimal external vulnerability as the countries’ current account positions, foreign currency government debt ratios and borrowing requirements were manageable.

In terms of policy space, Moody’s said the low loan-to-deposit ratios, and also low inflation in the region should help policymakers easily respond in case of an economic slowdown.

The declining oil prices will also benefit the region as most of the economies are net importers of oil, Moody’s said.

“Lower oil prices will have a positive influence on Asia’s macroeconomic performance. The two most important effects are on the region’s external and fiscal accounts,” Moody’s said.